The best explanation I found to show the differences is in the book – Zero To One By Peter Thiel.
Here is what it said about perfect competition and a monopoly.
“Perfect competition” is considered both the ideal and the default state in Economics 101. So-called perfectly competitive markets achieve equilibrium when producer supply meets consumer demand. Every firm in a competitive market is undifferentiated and sells the same homogeneous products.
Since no firm has any market power, they must all sell at whatever price the market determines. If there is money to be made, new firms will enter the market, increase supply, drive prices down, and thereby eliminate the profits that attracted them in the first place.
If too many firms enter the market, they’ll suffer losses, some will fold, and prices will rise back to sustainable levels. Under perfect competition, in the long run no company makes an economic profit.
The opposite of perfect competition is monopoly. Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits.”
Thousands of businesses run on the perfect competition model, that is the reason for the intensified competition, where top competitors are throwing in millions of dollars in adverts to make all the sales, and others who can’t afford the millions are slashing down their prices to ridiculous price points, thereby reducing perceived value as well as quality of customers they gain over a lifetime of the businesses’ existence.
You can become so good at what you do in your company that no one else will come close to offering a preferred substitute. Look at the likes of Google vs others, Apple vs others, Amazon stores vs others, and Netflix vs other movie streaming sites.
The question is, “What are you going to do after now to make your business the most superior in your industry?”
It could be the hardest process to go through, but the answers you’ll find can keep you in business for decades even amid an apparent economic breakdown.
